MIP-16┃Reduce PAR debt ceiling to 0 on all tokens as collateral of PAR on Parallel Fantom

Summary: This proposal is proposing the reduction of the PAR debt ceiling to 0 on all tokens as collateral of PAR on Parallel Fantom, following the Multichain bridge exploit.

Context: Yesterday at 9:06 PM CET the Fantom & Moonriver Multichain bridge was exploited 1 for an approximate amount of $126M$.

Today at 1:27 AM CET the Multichain team stopped the bridge, all pending transactions are stuck on the source until they resume the bridge. There is currently no ETA for resumes.

The $MIMO tokens bridged from Ethereum to Fantom have not been affected by the exploit. The tokens are still in the Multichain staking address and $MIMO token holders have not lost any funds. However, as the bridge is paused, $MIMO token holders on Fantom cannot bridge back their tokens to Ethereum.

Note: The $MIMO tokens on Polygon and Ethereum aren’t affected by this exploit.

The Parallel Protocol on Fantom currently supports as collateral 4 tokens with these parameters:

USDC, WETH and WBTC are affected by the exploit and are currently only partially backed (for now it seems that FTM hasn’t been impacted by the exploit):

USDC → 68.22% collateralized WETH → 73.57% collateralized WBTC → 17.03% collateralized 199,975 PAR are currently minted with these tokens as collateral:

Note: the PAR tokens on Ethereum and Polygon aren’t affected by the Multichain bridge exploit due to the fact that the Parallel protocol is isolated between each chain. The PAR cannot be seamlessly bridged between chains.

After calculations, the PAR is still overcollateralized at 105% despite the exploit of the multichain bridge due to its overcollateralized architecture. (It could change in the future)

Rationale: Following the exploit, as explained in the context USDC, WETH and WBTC are now partially backed and the Multichain is now paused for an undetermined period. This could create a “depeg” of these assets in comparison to other chains, to approximate their collateralization value (or even less, due to the fact that tokens can no longer be bridged). However, to calculate the price of tokens on Parallel, the protocol uses Chainlink’s price oracles, which take into account the price of tokens on different chains/exchanges. This means that, in the case of a depeg on USDC, WBTC and WETH where the price difference (%) between Chainlink and onchain prices is greater than the minimum collateral ratio allowed, arbitrage is possible, enabling instant gains.

Ex: Deposit 1000 USDC → borrow 900 PAR → sell 900 PAR for 1100 USDC → start again

As there are risks on the protocol economic activity (tier 2 risk), we propose the reduction of the PAR debt ceiling to 0 on all tokens as collateral of PAR on Parallel Fantom, including USDC, WETH, WBTC and WFTM by using the Emergency Guardians. One hour after the publication of the proposal on the governance 4 transaction will be initiated on the Fantom DAO Multisig 1 to set debt ceiling to 0 ro prevent any potential risk. 48h later the proposal will be published on Snapshot 1 for definitive action.

Note: The reduction to 0 of the debtceiling will still let current borrowers pay back their debt.

To reduce the risk of potential bad debt and incentivize borrowers to pay back their debt, the governance could also, in the future, increase the borrowing rate and liquidation bonus. For now we think that reduce the debt ceiling to 0 on all tokens as collateral via the emergency guardians is suffisant. The proposal may be updated to include these parameter changes as the situation evolves.

Means:

• Human resources: Parallel Multisig signers will have to execute technical implementation 1h after the publication of the proposal.
• Treasury resources: There is no treasury cost.

Technical implementation:

• WFTM: Update ConfigProvider to set debtceiling to 0
• USDC: Update ConfigProvider to set debtceiling to 0
• WBTC: Update ConfigProvider to set debtceiling to 0 -WETH: Update ConfigProvider to set debtceiling to 0

Authors: @JeanBrasse from Mimo Labs